Resource title

That elusive elasticity : a long-panel approach to estimating the capital-labor substitution elasticity

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Resource description

The elasticity of substitution between capital and labor features prominently in several areas of economic research. However, a consensus estimate remains elusive. We develop an estimation strategy that filters panel data in an original way and avoids several pitfalls - difficult-to-specify dynamics, transitory time-series variation, and positively sloped supply schedules - inherent in investment equations that can bias the estimated elasticity. Results are based on an extensive panel containing 1,860 manufacturing and non-manufacturing firms. Our model generates a precisely estimated elasticity of approximately 0.40. The method developed here may prove useful in estimating other structural parameters from panel datasets.

Resource author

Robert S. Chirinko, Steven M. Fazzari, Andrew P. Meyer

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Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/18879

Resource license

Adapt according to the presented license agreement and reference the original author.